I use a test setup with Webdriver and TestNG in Eclipse using java client.
Earlier when i was using Selenium 1 in this same setup, it was giving a very descriptive line by line run-info which made it very easy to trouble shoot.
Is there any way to get this activated in webdriver ?

where LogDriver should be your own class implementing WebDriverEventListener.

WebDriverEventListener methods are fired every time you use WebDriver action like findElement or click. Therefore you can put there a couple of System.out.printlns() (or something more sophisticated like appending to html file) and it should be enough for troubleshooting.